Individual Retirement Account (IRA) Basics

You’ve probably heard a lot about IRAs, and how they’re an investment option for retirement. But what exactly is an IRA—and is it the right choice for you?

What's an IRA?

An Individual Retirement Account (IRA) is a type of investment account that helps you save for retirement. It’s similar to a 401(k).

However, unlike a 401(k), it’s not tied to your employer. An IRA belongs to you individually, which means you get more control and flexibility.

There are two types of IRAs:

Traditional IRA

You deduct your IRA contributions from your taxes in the year you made the contributions, which lowers your taxable income for that year. You then pay taxes on the money when you withdraw it in retirement (based on your income at the time of withdrawal).

Roth IRA

You contribute using after-tax money (taxed based on your income at the time of contribution), without deducting those IRA contributions from your taxes. You then withdraw your money tax free.1 You can withdraw your contributions (but not earnings) at any time—not just in retirement.

You can set up an IRA in one of two ways:

  • A rollover IRA. Transfer over existing retirement savings (like a 401(k) account from a past job) to fund your IRA.
  • A start-up IRA. Make an initial, lump-sum deposit to fund your IRA.

Why is an IRA a good choice for your retirement savings?

An IRA is all about you. It offers:

  • Convenience. Your IRA belongs to you. It’s not tied to a company you work for, and it sticks with you through retirement, so you have more flexibility with when and how you contribute to it.
  • Control. You’ll have access to a broad range of investment options, not just what’s offered in an employer retirement plan. (Options can include mutual funds, stocks, bonds, and more—and we can help you with investment choices if you want.)
  • Consolidation. You can transfer other retirement accounts into your IRA—consolidating your savings in one spot.

Learn more about your retirement savings options (PDF)

Why choose a Principal IRA?

You've seen why an IRA is a great option for saving for retirement. Find out what makes a Principal® IRA stand out above the rest. Learn more about choosing a Principal IRA.

Or, open your Principal IRA today:

Want more info first? Check out our article on things to think about when opening an IRA.

Start your Principal IRA
Already have an IRA with Principal?

Log in to view account information online or add to your account.

Help to reach your retirement goals

Man looking up information on retirement accounts to supplement his employer plan

Will you have enough income for the retirement of your dreams? Going beyond the 401(k)

When it comes to saving for retirement, your 401(k) or 403(b) is typically only one piece of the puzzle. Help make sure you’ll have what you need by considering an IRA or annuity.

Young mother juggling the demands of life and saving for retirement

7 steps to get your financial priorities in order

How do you keep everything on track when you’re juggling lots of financial demands? It takes planning and prioritizing. These 7 steps can help.

1 Your account must be open for 5 years and you must be over age 59 ½ to be eligible for qualified tax-free withdrawals.

This document is intended to be educational in nature and is not intended to be taken as a recommendation.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Financial professionals are sales representatives for the members of Principal Financial Group®. They do not represent, offer, or compare products and services of other financial services organizations.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC. Principal Life and Principal Securities are members of Principal Financial Group®, Des Moines, IA 50392.